Bull Market turns 1....Bears were confident a month ago...now they are sulking

Quite a day! Lots to talk about. Bears really took it up the kiester this week. While browsing my favorite bear blog I noticed the permabear types were quite in agony today. 1 month ago I mentioned how these jokers had a resurgence in confidence...how they felt a bounce would be a "gift" to go short. I'm quite sure a lot of bears went short when the market bounced to around the 1085-1100 area because that was the "gift" they were waiting for. I've always said beware of when the market hands you a gift because that gift is often a guillotine designed for your neck. Bears got their bounce and now they've been bounced.

The market was overbought heading into today and now it's even more overbought likey very close to maximum ST overbought. Hitting maximum ST overbought doesn't necessarily preclude an immediate major drop (although it can). What sometimes happens instead is that the market backs off a bit to relieve a bit of this condition and either retests the high of the move or makes a new high and does this for a few days or even weeks. Either way, it's not prudent to be chasing the market on the long side during such conditions because the risk/reward isn't good.

Personally, I don't believe the market is going to break out to make significant new 52 week highs just yet even though a retest of 1150 or marginal new high is likely in the cards....we're pretty much there now. The market leading NASDAQ which is showing good relative strength is already at the 52week high. I noticed Apple has made a new all time high. Apple has been the market leader of this bull market and you will be well served to pay attention to the market leader. Apple making a new high is a LT positive indicator.

With the bears sulking like this it may turn out to be a good ST bearish contrary indicator! After all, they were thumping their chests one month ago at the market bottom and now they are crying in their beer. I have found that whenever I have seen the bears crying like this the suffering could actually go for a bit longer before they get thrown a bone. But don't be a greedy bull here. This rally since the February low has been somewhat sloppy with plenty of unfilled gaps below which suggests we will see downside again to at least the 1100-1115 level in the not too distant future even if we go higher from here. This would fit well into the multi-month consolidation pattern I've called.

If the market ends up stopping and reversing significantly anywhere between now and around the 1150 area you're going to see the bears get excited about a double top, failed rally, lower high pattern or whatever the case may be to confirm their stubborn, money losing bearish biases. That's exactly what happened in 2004. Take a look at the chart in 2004.



For the first 7 months in 2004 the market looked like it was making a series of lower highs and lower lows and this got the bears all lathered up for what they believed was going to be the next bear market down leg after a supposed 1 year "bear market rally". In the end, it turned out to be a multi-month consolidation pattern in disguise which ripped the bears a new one bankrupting the last of them who were already badly mauled by the 2003 rally.

The consolidation phase I'm expecting could show similar action as what was seen in first half of 2004, however, DON'T ever expect the market the play out exactly the same way wiggle for wiggle as it did in a prior period even though there's similarities in circumstances. It won't happen. For example this year we've already seen a 9% drop whereas in 2004 such a drop didn't happen until late March. And don't ever think dogmatically about the market. Be completely open and unbiased to new evidence that would invalidate your thesis. Your thesis should fit the facts not the other way around.

The job number came in better than expected but it's still showing losses so it's not like it was an eye popping good number. However, I think a lot of people were bracing for a worse than expected number echoing the thoughts I had the other about bad wheather in Feburary. An interesting tidbit of news today was that consumer credit has risen for the first time in 1 year. Now, one data point a trend does not make, so let's keep an eye on this. But if this does end up being a trend this is going to put a big dent to the "deleveraging new normal economy" group think that's out out there.

The bull market has now turned 1. Go back in history to see if there was ever a bear market rally that lasted as long as 1 year (not to mention a 70% rise). Let me save you some time....there was NEVER such an occurance, but there's always a first time for everything I suppose....